I've always thought being able to use the Eye Bone in a formula would be neat, and if you change the Eye Bone why wouldn't Chester change with it? Here's a few ideas to go along with that sentiment:
Knight Chester: Change the Eye Bone into the Eye-Sword via some type of formula. Gives Chester additional health and item slots, and makes the Eye Bone a weapon that has a small chance to send the foe's drops (PVE) or a small number of inventory items (PVP) to Chester once per battle.
Possessed Chester: Change the Eye Bone into some kind of candle or scrying orb using a formula. Allows you to capture one player ghost and have limited access to their perk. Other players can use Telltale Hearts or Life-Giving Amulets to bust the ghost out of Chester though, so watch out! (Does not work on the Werebeaver ghost.)
Two-Way Chester: Change the eye bone into a key via a formula. A stationary chest is created where the formula is made, and the key functions like the Eye Bone. The chest and Chester are linked and players can move items between this shared inventory, allowing collectors to better supply base camps, base camp to supply PVP fighters, etc.